Traders Brief - Volatility Ahead Due to Ongoing Feb Reporting Season and US-China Talks in Beijing This Week

MARKET REVIEW

Asian markets ended lower following the overnight fall on Dow amid renewed concerns over the US-China trade negotiation after President Donald Trump said he does not plan to meet President Xi, ahead of the widely-watched US Treasury Secretary Minchin and trade representative Robert Lighthizer visit to Beijing on 14-15 Feb. The cancellation of meeting came following comments from the White House economic advisor Larry Kudlow, who said China and the US were still far away on striking a trade deal.

After a commendable start on the first day of the Year of the Boar (with a 9.8-pt gain), KLCI fell 6.9 pts at 1686.5 (+3 pts WoW) last Friday, tracking tepid regional markets and fuelled by selloff in heavyweights Axiata (-17s to RM3.73), Tenaga (-22s to RM13.20) and MISC (-11s to RM6.85). Despite headline loss, market breadth was positive with 407 gainers as compared to 344 losers amid active buying interests in small caps and lower liners, supported by the gains in FBM Small Cap (+0.45%) and FBM ACE (+0.85%) indices.

The Dow skidded as much as 287 pts to 24883 before paring the losses to 63 pts at 25106, recording its 3rd straight decline. However, the index still added 0.2% WoW to extend its winning streak for the 7th week. The US-China trade war remains a core issue for investors after US President Donald Trump confirmed he had no plans to meet with Chinese President Xi Jinping before a 1 March trade-deal deadline. CNBC reported that the US is likely to keep tariffs at 10% rather than raise them to 25% as scheduled.

TECHNICAL OUTLOOK: KLCI

Following the retreat below 10D SMA last Friday to 1683.6, KLCI near term upward momentum has turned slightly negative. A further drop below weekly supports of 1680 (50D SMA) and 1670 (lower Bollinger band) will trigger further consolidation to retest 52W low at 1627 (18 Dec). Conversely, only a successful breakout above the downtrend line near 1692 will lift KLCI to test the 1705 (28 Jan high) and 1711 (100D SMA) resistances.

KLCI could remain choppy ahead of the resumption of US-China trade talk in Beijing on 14-15 Feb. Also, sentiment is likely to engage in a cautious tone as February reporting season begins. Overall, investors are probably looking at a more defensive situation until we have more clarity on the trade negotiations and corporate earnings outlook. Key resistances are pegged near 1692/1705 while supports are set at 1680/1670 levels.

TECHNICAL OUTLOOK: DOW JONES

The Dow continued its uptrend above the 20D SMA (24701) but the momentum is tapering off after last week’s wild swings within 24883-25439 levels. Given the weakening technical readings, the Dow is likely to engage in range bound consolidation mode with key supports fall on 24500-24700 while stiff resistances are situated at 25500/25800.

Following the 3-day decline in Dow, near term undertone has been interrupted and an extended consolidation is likely to prevail. Overall, the rising uncertainty around U.S.- China trade relations and the growing worries over the global economy coincide with a deteriorating earnings outlook for 2019, as 1Q19 earnings growth estimates have shrunk to below 1% from above 5% at the start of the year.